Forex Blog - Trade The News Weekly market update

Trade The News Weekly market update

Dow -85 S&P -9.6 NASDAQ -9.2- Traders are taking a break this morning after last week's stretch of solid gains for stocks. US equity indices are below Friday's closing levels, with little data and some downbeat corporate news from homebuilder Lennar and Caterpillar keeping things on the weak side. Note that well-known skeptics Paul Krugman and Bill Gross both spoke before the open. Krugman warned that the US has $1.1T annual capacity staying idle and said unemployment could keep rising into 2011. PIMCO's Bill Gross once again insisted that stocks are due for a pullback, and said bond markets heading for consolidation. A firmer Greenback is helping NYMEX crude move lower, down nearly $3 around $69.30. Earlier this morning a BP Economist said that OPEC will struggle to maintain quota discipline as spare capacity is weakening the cartel's grip on oil prices. Treasury prices remain stubbornly bid heading into this week's $102B in supply. The 10-year note is up close to half a point pushing the yield back down towards 3.4%.

- Homebuilder Lennar reported dire Q3 numbers this morning, missing earnings and revenue estimates by wide margins. In opposition to trends seen out of other homebuilders, Lennar did not see growth in new home orders on a sequential basis, and the cancellation rate grew somewhat over last quarter. Shares of LEN are down more than 5% in early trading, with PHM, TOL and KBH down 2% in sympathy. Caterpillar disclosed three-month dealer statistics for the June-August period that were essentially flat on a sequential basis, echoing news from Deere a week and a half ago. Both DE and CAT are -2%. In merger news, Dell announced it would acquire Perot Systems for $30 a share in cash, in a deal worth $3.9B. Dell expects the deal to be accretive to GAAP earnings by FY12. Perot sees Dell global exposure as net benefit to expand operations into Asian and European markets. Shares of DELL are down 3%, while PER is up more than 65%. Cap Gemini is up a few percent on an RBS analyst note speculating that this deal may fire up speculation on suitors for the name.

- In pre-earnings guidance, Potash slashed its 2009 earnings outlook, citing weak sales volume, and also said its Q3 EPS would come in at the low end of its prior guidance range. The change primarily reflects lower than forecasted potash sales volumes due to continued slow demand and limited restocking by fertilizer distributors around the world. Shares of POT are down more than 5%, while competitors MOS, AGU and IPI are down 4-5%. Activision Blizzard reaffirmed its 2009 view, but also cautioned that the overall environment is shaky. Shares of ATVI are up on the news, while other video game names are in the red.

- In currencies, the greenback initially extended gains against the major pairs as the New York session began, until comments from Russia about reserve currencies added weight to the dollar. Russia's First Deputy PM Shuvalov reiterated that more reserve currencies were needed and that Russia would like to build up the ruble as regional reserve currency. He did note that the country still planned to rely on dollar in part. The official noted that while Russia was not against the USD, it sought to diversify its holdings away from one principle denomination. EUR/USD tested 1.4610 ahead of the comment but retreated toward the middle part of the 1.46 handle to consolidate its recent gains since the Asian open.

- Overall dealers commented that the price action has been driven by technicals. GBP/USD is off its worst levels following the BoE's Quarterly Bulletin, which was released during the Asian session. The BoE said the depreciation of the pound reflects a perceived deterioration in the relative strength of the UK's economy and an increase in the premiums required by investors to hold UK assets. GBP/USD was at 1.6175 midway through the New York morning, off 80 pips from opening levels in Asia but consolidating from lows of 1.6135.

- Treasury supply will a focal point this weekas over $200B in bills and notes on the auction block during the week. During the European morning, dealers noted that foreign appetite for US Treasuries remained strong ahead of record auction calendar this week. US Treasury data showed that foreign investors purchased 43.1% of the $1.41 trillion of notes and bonds sold in 2009 compared with 27.1% of the $527B issued at this point in 2008.

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